A Texas Natural Gas Anomaly

Oh, Texans are strange. Just look at the fuels that they burn: Though gas is their brand, they bring coal from out-land, and their neighbors are happy all day.

That’s the message of a report just out by University of Houston professor Michael J. Economides and consultant Philip E. Lewis, “Texas Natural Gas: Fuel for Growth.” The report says that although the U.S. revolution in unconventional gas took off with development of Texas's Barnett Shale [highlighted in map] a decade ago, Texas oddly has been using less and less natural gas to make electricity while the rest of the country has been using more and more. The numbers are dramatic. Nationwide, the amount of electricity generated from coal dropped roughly 20 percentage points, from about 80 percent in 1995 to about 60 percent in 2011, while the gas-generated share climbed from about 20 percent to almost 40 percent.

In Texas, despite the superabundance of local shalegas, the trend has been almost the opposite. The gas share in electricity production, instead of increasing by 15-20 percentage points since 1995, has dropped a couple of points. And coal’s share, instead of shrinking by 15-20 percentage points, has contracted by only a few points.

What accounts for the anomalous Texas pattern? Economides, a prominent energy specialist, says he frankly isn’t quite sure. But he is inclined to think it is the usual story, where “energy companies will opt for the path of least resistance.” That is, rather than obtain the 600-800 permits they might need to build a new gas-fired generating plant, they prefer to just import relatively inexpensive coal-generated electricity from neighboring states.

The message of the Economides-Lewis report, which by the way was commissioned by the American Natural Gas Association (ANGA), is that Texas is unnecessarily exporting money to energy companies in neighboring states and foregoing tax revenues it would obtain if it made more of its electricity from fuels produced in-state. It estimates that the state gave up $4.17 billion in tax revenue it could have obtained from natural gas purchases between 2005 and 2011.

While I hesitate to cross swords with an eminent energy economist, especially one named Economides, I do have a few quibbles. The report would be more convincing, it seems to me, if it had calculated exactly how much Texas has paid to import coal-generated electricity from neighbors and had compared that with how much it would have paid to buy home-made gas-generated electricity instead. Ideally, the report would also have estimated the cost of building and amortizing additional gas generating capacity, though that admittedly would be very hard to do. Then too, the report rather glosses over the fast-growing share of wind in Texas's generating mix—the state after all is the country’s leading wind generator.

Nevertheless, the report’s targeting of Texas’s peculiar energy trends is by itself worth the price of admission--though, let it be said, the report is not posted on ANGA's website and appears to be available only as a pdf from the authors.